General Electric: Alstom Still A Terrible Idea

Summary

I have voiced strong dislike for this deal from the beginning and I stand by my call.

GE should take a hard look at what it is trying to do before pulling the trigger.

General Electric's (NYSE:GE) ongoing saga to acquire certain assets from Alstom (OTCPK:ALSMY) has just gotten ridiculous. Not only has this thing been dragging on forever but now, GE is making enormous concessions to the French government in order for the Socialist paradise to allow GE to grace it with its presence. I hated this deal when it was first announced and I continued to hate it as the protectionist rhetoric began spewing from the French government, demanding concessions on the part of GE. It turns out that my fears have been well-founded as France is still demanding conditions from GE and we still don't have a deal.

As someone who is long GE I can't believe the company is still pursuing this train wreck. I've outlined all of the reasons why I thought this acquisition was a bad idea from the business side in the articles linked above so I won't do it again but the points still stand. What is amazing to me is that GE is choosing to put up with the French government's attitude and when they act like a spoiled five year old, GE just crawls back to the negotiating table, hat in hand, begging for the five year old not to take its lunch money. It's pathetic. Doesn't management have something better to do than grovel to people who know absolutely nothing about free enterprise and creating jobs?

Alstom is still an underperforming company that went out of business but for a government bailout in the recent past and thus, would be a bad acquisition for $17 billion worth of shareholder money without the song and dance from the French government. However, with the added aggravation, I just don't see the justification for this deal. When is enough, enough?

The latest demands are in line with others in that France is dictating the terms of the deal. Think about what I just said; a government is dictating terms of a deal between two companies and nobody thinks that's unacceptable. I know that's just how they do it in France but that is all the more reason this deal is terrible. Who wants to deal with that when they haven't even bought the company yet? What's going to happen when/if some version of this deal actually goes through? Does GE honestly think the French government is just going to go away? GE is looking at decades' worth of over-regulation and micro-management from the French government if this deal is consummated. If GE wanted to move or downsize operations it would likely be sued by the French government for having the nerve to actually run its business in a logical way. That isn't the French way and I have a feeling "winning" this deal would be so much worse than the negotiation disaster we've already witnessed.

And that's the kicker. Not only is this deal terrible from a financial perspective but what I predict would happen is that GE would take on whatever business the French government allows it to, GE would run the business how it wanted and the French government would object to some form of capitalism breaching its carefully guarded shores. Then, GE would be subject to the same profit-destroying, overbearing regulations that Alstom is right now, jeopardizing shareholder money for no good reason. Alstom may have great technology but is it worth it? GE won't be able to do what it wants with Alstom as a potential acquirer is treated like a child by the French government so there is no telling what a mess this thing will be in five years' or ten years' time.

The bottom line is that GE is much better off without this headache. The French government has given GE every opportunity to run screaming from the negotiation table and yet, there it sits, groveling, crawling to the French government and begging for permission to pay an outrageous price for a money-losing quagmire. More astonishing is the price tag; GE could retire 632 million shares at today's prices with $17 billion instead of flushing it down the drain across the pond on a terrible acquisition. Shareholders should revolt and demand that GE management step away from the Alstom deal and instead, actually use the money to create shareholder value rather than destroy it. We need management to grow up and realize the company is better off just walking away.

Disclosure: The author is long GE. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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